Dear Mr. Berko: My spouse and I are both 55 and have $15,000 we’d like to invest for at least 12 years. Would you recommend two stocks that we can buy, hold — reinvesting the dividends — and put away in our “retirement drawer”? In 2028, when we’re both 67, we’d use them for our retirement income. Pfizer is the only stock we know about. My wife works for the company in its big lab here in St. Louis. Is this stock a good one to buy? Both of us have decent retirement accounts where we work, and the $15,000 is part of a $35,000 certificate of deposit that came due last month. We don’t want mutual funds. We want one stock to be very conservative and the other to be a little aggressive.
— K.T., St. Louis
Dear K.T.: ADP LLC (ADP-$87) is among the most unexciting, boring companies to ever list on the Big Board. Look up “conservative” in Merriam-Webster’s dictionary and a summary of ADP and its management might stare you in the face.
With 55,242 employees and 632,103 clients, ADP is the largest provider of business outsourcing solutions in the nation. Its employer services division provides payroll and tax services and accounted for 71 percent of 2015’s $11 billion in revenues. ADP’s professional employer organization services provide comprehensive human resources solutions to smaller companies and accounted for 29 percent of last year’s revenues. When the company attracts a new client, those new clients tend to stay with ADP for more than 10 years. That’s impressive.
Wall Street expects the ES division to grow revenues by about 4 percent annually as the number of employees on corporate payrolls gradually increases. ADP’s results do not depend on the marginal need for employees; rather, they depend on the aggregate level of employment, which doesn’t vary greatly. Its PEO services, fueled by the confusing conflicts of the Affordable Care Act and continuing federal changes in human resource regulations, are expected to grow by 14 to 16 percent annually. In the past 10 years, revenues have increased by 50 percent; net profit margins have averaged a strong 12.5 to 13 percent; and the dividend has tripled. That’s very impressive, too. Management’s disciplined capital allocations have allowed ADP to grow its dividend annually for 40 years. And in the past decade, return on capital has steadily improved by 50 percent, while return on equity has more than doubled. And so should your investment in ADP. Remember to reinvest the $2.12 dividend, which yields 2.36 percent.
